SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 --------------- For the period ended March 31, 1998 AUTOLIV, INC. (Exact name of registrant as specified in its charter) Delaware 51-0378542 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) World Trade Center Klarabergsviadukten 70 Box 70381 S-107 24 Stockholm, Sweden (Address of principal executive offices) Registrant's telephone number, including area code: 46 (8) 587 20 600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: ------ ------- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: There were approximately 102 million shares of Common Stock of Autoliv, Inc., par value $1.00 per share, outstanding as of April 20, 1998. PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) AUTOLIV, INC. Consolidated Statement of Income (unaudited) (dollars in millions except per share data) <TABLE> <CAPTION> Three Months ended Mar. 31, Mar. 31, 1) 1998 1997 <S> <C> <C> Sales $ 837.9 $ 445.7 Cost of sales (655.1) (353.5) ------- ------- Gross profit 182.8 92.2 Selling, administration and general (39.4) (20.3) expense Research and development expenses (46.1) (28.2) Amortization of intangibles, (15.2) (2.9) primarily goodwill Other income - net 0.7 0.7 ------- ------- Operating income 82.8 41.5 Equity in earnings of 1.8 2.1 affiliates Interest income 1.6 1.1 Interest expense (15.5) (1.5) ------- ------- Income before income taxes 70.7 43.2 Income taxes (28.3) (14.4) Minority interests in subsidiaries 0.0 (0.4) ------- ------- Net income 42.4 28.4 Net income per share - assuming 0.41 0.52 dilution Number of shares used in computing 102.2 55.0 per share amount Number of shares outstanding 102.2 55.0 </TABLE> See notes to consolidated financial statements 1) Autoliv AB and subsidiaries AUTOLIV, INC. Consolidated Balance Sheet (unaudited) (dollars in millions) March 31, December 31, 1998 1997 ------------ ------------ ASSETS Cash and cash equivalents $ 250.1 $ 152.0 Receivables, less allowances 629.3 569.2 Inventories 201.9 197.8 Refundable and deferred income tax benefit 33.4 20.5 Prepaids 40.6 34.7 -------- -------- Total current assets 1,155.3 974.2 Property, plant and equipment, net 740.3 727.2 Investments and other receivables 29.4 34.6 Intangible assets, net (mainly acquisition goodwill) 1,674.5 1,694.5 -------- -------- TOTAL ASSETS 3,599.5 3,430.5 ======== ======== LIABILITIES AND EQUITY Short-term debt 229.2 186.2 Accounts payable 397.4 385.3 Accrued expenses 326.3 326.1 Other current liabilities 77.8 69.6 Income taxes 58.2 32.3 -------- -------- Total current liabilities 1,088.9 999.5 Long-term debt 676.6 611.8 Other noncurrent liabilities 97.9 100.8 Minority interests in subsidiaries 13.5 14.4 -------- -------- Total noncurrent liabilities and minority interests 788.0 727.0 Common stock, par value $1 per share 102.2 102.2 Additional paid-in capital 1,938.5 1,938.5 Retained earnings (accumulated deficit) and foreign currency translation adjustments (318.1) (336.7) -------- -------- Total shareholders' equity 1,722.6 1,704.0 -------- -------- TOTAL LIABILITIES AND EQUITY 3,599.5 3,430.5 ======== ======== See notes to consolidated financial statement AUTOLIV, INC. Consolidated Statement of Cash Flows (unaudited) (dollars in millions) THREE MONTHS ENDED MAR. 31, MAR. 31, 1998 1997 (1) OPERATING ACTIVITIES Net Income $ 42.4 $ 28.4 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54.3 24.1 Deferred income taxes 4.3 Undistributed earnings from affiliated companies (1.7) (2.0) Changes in operating assets and liabilities Receivables and other assets (68.5) (6.5) Inventories 0.4 10.5 Accounts payable and accrued expenses 3.8 (28.7) Income taxes 24.9 0.9 ------ ------ Net cash provided by operating activities 59.9 26.7 INVESTING ACTIVITIES Expenditure for property, plant and equipment (59.0) (24.5) Acquisition of businesses and investments in affiliated companies (3.3) 0.0 Other 5.3 0.1 ------ ------ Net cash used for investing activities (57.0) (24.4) Cash flow before financing 2.9 2.3 FINANCING ACTIVITIES Increase in short-term debt 41.1 7.8 Increase / (decrease) in long-term liabilities 63.6 (2.7) Decrease in minority interest (0.9) (0.5) Dividends paid (11.2) Other - net 4.6 (0.6) ------ ------ Net cash (used for) provided by financing activities 97.2 4.0 Effect of exchange rate changes on cash (2.0) (8.0) INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 98.1 (1.7) Cash and cash equivalents at beginning of period 152.0 131.7 ------ ------ Cash and cash equivalents at end of period 250.1 130.0 ====== ====== - - -------------- See notes to consolidated financial statements 1 Autoliv AB and subsidiaries Autoliv, Inc. Notes to Consolidated Financial Statements (unaudited) March 31, 1998 1. Basis of Presentation The accompanying interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management all adjustments considered necessary for a fair presentation have been included in the financial statements. All such adjustments are of a normal recurring nature. For comparison purposes the proforma income statement first quarter 1997 and proforma full year 1997 is included below. For a further description of the combination on May 1, 1997 of Autoliv AB with the Auto Safety Products Business of Morton International, Inc. ("ASP"), see Autoliv Inc.'s Annual Report on Form 10-K for the year ended December 31, 1997. Statements in this report that are not historical facts are forward-looking statements, which involve risks and uncertainties that could affect the actual results of Autoliv Inc. ("Autoliv" or the "Company"). A description of the important factors that could cause Autoliv's actual results to differ materially from the forward-looking statements contained in this report may be found in Autoliv's reports filed with the Securities and Exchange Commission. CONSOLIDATED STATEMENTS OF INCOME PROFORMA (UNAUDITED) (Dollars in millions, except per share data) <TABLE> <CAPTION> Quarter Jan.- Mar. Full Year 1998(1) 1997(2) 1997(3) <S> <C> <C> <C> Net sales - - - Airbag products $ 583.6 $ 601.3 $ 2,316.4 - - - Seat belt products 254.3 232.9 940.4 ---------- ---------- ---------- TOTAL NET SALES 837.9 834.2 3,256.8 Cost of sales (655.1) (638.7) (2,537.0) ---------- ---------- ---------- GROSS PROFIT 182.8 195.5 719.8 Selling, general & administrative expense (39.4) (36.7) (154.7) Research & development (46.1) (40.3) (152.7) Amortization of intangibles (15.2) (15.2) (59.6) Other income, net 0.7 0.4 3.2 ---------- ---------- ---------- OPERATING INCOME 82.8 103.7 356.0 Equity in earnings of affiliates 1.8 2.7 10.3 Interest income 1.6 1.3 7.1 Interest expense (15.5) (13.8) (55.9) ---------- ---------- ---------- INCOME BEFORE TAXES 70.7 93.9 317.5 Income taxes (28.3) (38.6) (129.4) Minority interests in subsidiaries - (0.3) (3.2) ---------- ---------- ---------- NET INCOME BEFORE ONE-TIME ITEMS 42.4 55.0 184.9 EARNINGS PER SHARE 0.41 0.54 1.35 4) Write-off of acquired R&D - - (732.3) 4) ---------- ---------- ---------- REPORTED NET INCOME $ 42.4 $ 55.0 $ (547.4) </TABLE> 1) Actual results 2) Pro forma results 3) Comprised of proforma results for January 1, 1997 to April 30, 1997 and actual results for May 1, 1997 to December 31, 1997. 4) Included in the audited financial statements for Autoliv, Inc. (Autoliv AB and subsidiaries for period on and prior to April 30, 1997 and Autoliv, Inc. for May 1 to December 31, 1997) is the Write-off of acquired R&D reflected as operating expense for which a loss per share of $6.70 is reported. 2. Inventories Inventories are stated at lower of cost (principally FIFO) or market. The components of inventories were as follows: (Dollars in millions) March 31, 1998 Dec. 31, 1997 -------------- ------------- Finished products and work in progress $105.9 mil. 113.0 Raw material 96.0 84.8 ---- ---- 201.9 197.8 3. Other recent developments Autoliv acquired on April 7, 1998 the remaining 50% of the shares in Autoliv-Nokia and the other parts of Nokia's automotive-related electronics business. These operations are consolidated as of January 1, 1998. Following the acquisition in October, 1997 of the Marling Group, Autoliv sold four of the five Marling units not related to seat belt webbing, Marling's core business. The divestitures became effective as of January 1, 1998. Autoliv's holding in Autoliv-Cankor in Turkey has been increased from 50% to 90%. The acquisitions and divestitures decribed above have not has a material effect on the financial results of Autoliv for the first quarter of 1998. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Whereas the data provided under Item 1 in the Consolidated Statement of Income, Consolidated Balance Sheet and Consolidated Statement of Cash Flows reflect the results of Autoliv, Inc. for all periods subsequent to April 30, 1997 and for Autoliv AB for all periods prior to May 1, 1997, the analysis provided below is based on actual results of Autoliv, Inc. for all periods subsequent to April 30, 1997 and pro forma results of Autoliv, Inc. for all periods prior to May 1, 1997. THREE MONTHS ENDED MARCH 31, 1998 (ACTUAL) COMPARED WITH THREE MONTHS ENDED MARCH 31, 1997 (PROFORMA) Autoliv, Inc. reported sales and income before taxes of $838 million and $71 million, respectively, for the three-month period ended March 31, 1998, as compared to first quarter prior-year sales and income before taxes of $834 million and $94 million, respectively. The net income and earnings per share were $42 million and $0.41, respectively, in the first quarter of 1998, compared to $55 million and $0.54, respectively for first quarter 1997. Posted consolidated net sales for the first quarter 1998 were $838 million compared to $834 million during the first quarter 1997. The underlying sales increase (i.e. excluding currency effects and acquisitions) was 3%. Since approximately 70% of Autoliv's business is outside North America, a major portion of sales was negatively affected by the stronger U.S. dollar. The production of light vehicles is estimated to have grown by 6% in Europe and by 2% in North America, while light vehicle production in Japan is estimated to have fallen by 6%. The average increase for the three regions was 1.5%. Posted sales of airbags products (incl. steering wheels) amounted to $584 million for first quarter 1998, compared to $601 million during the first quarter 1997. Adjusted for currency effects and corporate acquisitions, the decrease was 1%. Volumes have continued to rise outside the U.S. (airbags are mandated in the U.S.). Price pressure has, however, at the same time been strong, especially in the U.S. The demand for side-impact airbags has continued to increase sharply, mainly as a result of higher installation rates. Currently, Autoliv ships this product to 18 car manufacturers divided among more than 60 different car models. During the first quarter 1998 posted sales of seat belt products (incl. seat sub-systems) grew by 9% compared to first quarter 1997 to $254 million, while sales excluding currency effects and acquisitions grew by 12%. Corporate acquisitions accounted for 4 percentage points of the reported increase. The significant increase in seat belt sales is due to new products and a higher sales volume. For example, the latest pretensioner generation introduced in 1997, has made it possible for Autoliv to increase its already high market share. Due to the strong price pressure and the stronger U.S. dollar, operating income declined to $83 million in the first quarter 1998 from $104 million for the corresponding quarter of 1997. Selling, general and administrative expense has increased as a result of the consolidation of the newly acquired companies (Marling, Autoliv-Nokia and Autoliv Argentina). The research and development expense, also affected by the acquisitions, has in addition risen as a result of the safety radar system, smart airbag systems and other new projects for long-term growth. The weak Asian market also had a negative impact on both sales and earnings. The gross margin and the operating margin for first quarter 1998 was 21.8% and 9.9%, respectively, compared to 22.1% and 10.9%, respectively for the full year 1997. The effective tax rate for first quarter 1998 was 40.0%, compared to 40.8% for the full year 1997. Excluding non-deductible amortization, the tax rate was 36%. LIQUIDITY AND SOURCES OF CAPITAL The cash generated by operations amounted to $60 million for first quarter 1998. Of that amount, $54 million was used for capital expenditures (net) and $3 million for acquisitions of businesses. The most important corporate acquisition was that of Nokia's automotive-related electronic business. Net debt increased by $10 million to $656 million during the first quarter of 1998. Net debt to equity stood unchanged at 38% as of March 31, 1998 compared to the beginning of the year. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K for the three months ended March 31, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934 the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Autoliv, Inc. (Registrant) Date: May 14, 1998 By: /s/ Wilhelm Kull ----------------------- Wilhelm Kull Chief Financial Officer